The ASX 200 Index moved sideways on Tuesday after the Reserve Bank of Australia (RBA) caught the market wrong-footed by leaving interest rates unchanged. It was trading at A$8,570, down from the day-to-day high of A$8,623.
RBA interest rate decision
The ASX 200 Index, which tracks the biggest companies in Australia, remained in a tight range at a crucial resistance level after the RBA left its interest rates unchanged at 3.85%.
The interest rate pause was notable because most analysts were expecting it to cut interest rates by 25 basis points. It left rates intact at 3.85%, citing the persistent inflation concerns.
The RBA noted that the economy was strong and that it could wait fo a little more time to confirm that inflation remained on track to reach the 2.5% target. Michelle Bullock, the RBA Governor, said:
“The Board judged that it could wait for a little more information to confirm that inflation remains on track to reach 2.5 per cent on a sustainable basis. It noted that monetary policy is well placed to respond decisively to international developments if they were to have material implications for activity and inflation in Australia.”
The RBA has been more cautious this cycle. It avoided rate cuts in 2024 as many banks, including the Federal Reserve and the European Central Bank (ECB) reduced their rates. Still, analysts anticipate that the bank will cut interest rates in August and at least two more times this year. An RBC analyst wrote:
“It’s a shock for the market that July hasn’t been delivered, but key language around inflation suggests they’re just kicking the can down the road to August which is pretty much a ‘lock’ now to the market.”
The ASX 200 Index also wavered after Donald Trump sent a series of letters to countries, warning them about tariffs. Australia was not in that list, and analysts expect it to be fairly safe.
Trump imposed a 10% tariff on all goods from Australia during his Liberation Day speech in April. This made it one of the least affected countries. Additionally, the total volume of trade between the US and Australia is relatively small, amounting to $51 billion. The US sold goods worth $34.6 billion to Australia and bought $16.7 billion.
Indeed, some analysts at the Australian Productivity Commission noted that the country would benefit from the tariffs. It expects a GDP boost of 0.37%, citing cheaper imports from other countries and capital flows to Australia.
Australian banks were mixed after the RBA interest rate decision. National Bank of Australia (NAB) and Commonwealth Bank of Australia (RBA) shares jumped by 0.37%, while Westpac stock fell by 54 basis points.
ASX 200 Index analysis
The daily chart shows that the ASX 200 Index has bounced back in the past few months. It moved from a low of A$7,267, its lowest level in April to a high of A$8,580, where it is today.
The index has remained above the 50-day and 200-day moving averages, a sign that bulls are in control. However, it has formed a double-top pattern at A$8,623 and a neckline at A$7,267.
Therefore, the index will likely pull back in the coming days if the double-top pattern works. If this happens, the next level to watch will be at A$8,400, the 50-day moving average. A break above the resistance level at A$8,623 will invalidate the bearish view and point to more gains, potentially to A$9,000.
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